As supply pressure and price increases continue to plague the hardwood market, manufacturers are working diligently to stabilize the category while meeting the increasing consumer demand.

While the industry has welcomed the increase in consumer demand for wood products, a harsh winter coupled with fewer sawmills to supply lumber has created an imbalance that is forcing makers to streamline costs, absorb pricing when possible and introduce new product innovations in an attempt to right course the market. Passing price increases on to retail has also been necessary.

Scott Sandlin, Shaw

Jack Shannon Jr., CEO of The Shannon Lumber Group, which owns Shamrock Plank Flooring, explained that the tanking economy from 2009 to 2012 took with it approximately 40 percent to 50 percent of hardwood capacity. Now that the economy is rebounding, there simply aren’t enough sawmills to meet the growing demand, he said.

“Many of the manufacturers didn’t have the capital or the relationships with banks to carry them through the slow times. So, what you have now in the industry are the survivors,” said Shannon. “We’re all smiling because business is great and prices are up but how can we raise capacity when we can’t find anyone to cut the logs?”

Kevin Biedermann, senior vice president, residential flooring products, Armstrong Flooring, added that during the downturn, sawmills also dramatically cut back on capacity and inventory, or simply went out of business, creating a lean supply environment and making it difficult for manufacturers to react to the market change.

“With spikes in demand of both flooring and from other industries, the logging industry wasn’t able to supply. The wet weather in the fall also had a severe impact on the ability to physically get the logs out of the forest. These things combined led to the significant continuing increases in raw lumber prices,” he said.
In particular, Neil Poland, president of Mullican Flooring, said lumber supply is currently the largest challenge to the solid hardwood market.

Dan Natkin, Mannington

“If you look at the lumber prices going back to August of 2012 and reference the market reports, the prices of red oak and white oak are up more than 60 percent since that time. Veneer prices have also increased during that time period,” he said, adding that the demand for lumber has in fact increased globally as well. “With the increase in demand, we saw a lot of heavy buying from Asia, specifically from China of purchased kiln dried lumber from the U.S. Hardwood has become popular there — especially American branded red oak,” he said. “Also, there has been continued competition for 2 C / 3 A red and white oak from the Industrial segment.”

And the severe winter weather hasn’t helped the situation, according to suppliers. And, added Dan Natkin, director of wood and laminate business at Mannington, “Unfairly traded imports continue to be one of the other big headwinds in the industry. We are awaiting the final results of the first annual review of the ITC case. The second annual review has started as well.”

Jack Shannon, Jr.
Shamrock Plank Flooring

Scott Sandlin, vice president of business development, hard surface, at Shaw Industries, agreed saying that it is important for the country as well as the industry to stop accepting unfair trade practices from many import suppliers.

“If distributors, dealers, home centers and others do not take a stand here competing against subsidized materials will continue to be a challenge,” he said.

Lessening the impactDiscovering alternative species and manufacturing techniques are just some of the ways suppliers are trying to lower production costs.
“We constantly seek better ways to manufacture the product, alternative species, as well as alternative products,” added Natkin at Mannington.

Biedermann said that, going forward, forecasting demand is also important. “We’re trying to get an idea of what customer demand is as we continue into 2014, and we’re trying to secure sources of supply and consistency in delivery. Hopefully we can help mitigate against pure supply issues. We, and others, are trying to do everything we can to be as efficient and effective as possible but on solid wood there’s a physical limitation,” he said.

Kevin Biederman, Armstrong

Sandlin said that Shaw works diligently on its supply chain to manage every aspect, from accelerating costs to inventory balances in order to help ease the effects of price increases on its customers.

“Ultimately, our number one focus is to service our customer better than anyone and this doesn't give you a ton of flexibility during a time of rising costs,” he said.

For solid hardwood, when it comes to absorbing long term inflation and raw material costs, manufacturers can absorb costs on a short term basis but long term proves more strenuous when promoting pricing stability in the industry, according to Patrick Barnds, vice president of product management, hardwood, at Armstrong.

“I think a big part of our responsibility, as a manufacturer, is to be smart about increasing demand so we don’t leave the industry short of supply. We absorb pricing to bring a steady and consistent supply of material to market. But, the worst thing would be to play games with raw materials and leave industry with shortages which is a much bigger threat than inflation,” he said.

And while suppliers are working to manage the increases, distributors and dealers are also feeling the impact now.

“It isn’t good news to see retail prices increase from $1 to $1.50 and move entry level from $2.99 to $3.50 or even $4 for a solid hardwood. Hopefully it doesn’t change the purchase decision of a consumer. It’s all about educating customers on grade quality and making sure there’s consistency of supply and quality. We’re working with a pricing economy on what we need and what retailers need to promote a viable hardwood industry to support the consumers,” explained Biedermann at Armstrong.

n solid hardwood flooring industry because there’s competing product coming in that’s putting downward prices on solid hardwood,” explained Shannon.
Mullican’s Poland agreed that while consumers do prefer hardwood to other products, the price of prefinished solid hardwood flooring had gone up so it was at risk of losing share to engineered wood and other flooring options.

“Prices went up too much too quick. We had five industry price increases in the beginning of 2013 and that’s unchartered waters. We have never experienced anything like that in our industry,” he said.

The good news, however, said Biedermann at Armstrong, is that the industry will see supply and demand equate in the near term.
“There’s plenty of hardwood in the forest, that’s not the issue; it’s just a matter of sawmills ramping up. In the next six to twelve months we hope to see supply catch up to demand and see stability in prices,” he said.